I Can’t Afford My Life Insurance Premiums. Now What?
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UPDATED: Apr 21, 2020
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Money is tight and you’re thinking “I can’t afford my life insurance premiums! Now What?”
Unfortunately, in this rough economy, a lot of people are struggling to pay their bills.
Far too many people simply allow their policy to lapse when they hit a financial roadblock.
This seemingly simple decision can turn a choppy ride into a dire financial emergency should an unforeseen accident happen in the meantime.
You will be relieved to hear that some of these tips do not require you to replace your current policy.
Let me show you some ways to keep your life insurance policy alive even when you can’t afford to pay your premiums!
6 Tips If You’re Having Trouble Paying Premiums
1) Reduce the Face Value of Your Policy
So you’ve reached the point when you are thinking “I can’t afford my life insurance policy!”.
We’ve all been through financial emergencies that make us reprioritize our spending habits. It’s part of life.
However, there are many areas that I would trim the fat from long before I let my life insurance policies go (and yes I have more than one policy!).
Thankfully, most term and permanent life insurance carriers allow you to reduce the face value of your policy one time!
Yep! You heard me right.
This will allow you to lower your premiums without losing all the benefits of your life insurance.
2) Reduce Your Premiums
If you have a universal life or whole life policy with some cash value built up in it, you may be able to reduce your premiums without affecting your policy’s guarantees.
Depending on your circumstances, this may give you room to skip a payment or two or possibly even enable you to stop making payments for years if you have enough cash value saved up!
So what if you have a term policy?
The good news is you may be able to skip or stop making payments if it was issued more than 10 years ago and you had to foresight to add a return of premium rider. Read more about return of premium below!
***Note: BE VERY CAREFUL to check the fine print. You need to know how reducing your premium will affect the policy’s guarantees. Ask your agent or the carrier about the details of your policy before moving forward.
3) Purchase a Less Expensive Policy
Term life insurance prices have been coming down! So if you are thinking “I can’t afford my life insurance premiums”, you may be able to replace your current policy with a new one that has the same benefits for less money!
If you have a whole life policy you may be able to do a 1035 exchange which would allow you to transfer your cash value into another permanent policy. You could pick a less expensive guaranteed universal life policy to save some money and maintain your protection.
This maneuver could allow you to cut your premiums in half!
Yep! Pretty cool huh?
***NOTE: This tip will provide you with coverage for life without the hefty price tag… BUT, you still need to be healthy to take this route, because you will have to apply for a new policy – which requires a medical exam!
4) Reduce Your “Paid Up Additional Insurance” Option
Some permanent policies allow you to eliminate your premium payments completely by taking a lower, paid-up death benefit.
This option is available through a rider that has to be added to your policy.
Let’s take a look at how it works now! For example, let’s say you pay $1000 per year for $500,000 of coverage, your reduced paid-up option might give you $150,000 of coverage for the rest of your life without paying another premium ever again!
This is a great option for those who had the foresight to add this rider! It means you can retain your life insurance and offload the responsibility for premiums from here on out!
***NOTE: This is not to be confused with a life insurance conversion, which actually increases your premium!
5) Sell Your Policy
There is an interesting option available for seniors who are having a tough time keeping up with their premiums. It’s called a life settlement:
A life settlement is the sale of a life insurance policy to a third party for a value in excess of the policy’s cash surrender value, but less than its face value, or death benefit. A policy owner receives a cash payment, while the purchaser of the policy assumes all future premium payments and receives the death benefit upon the death of the insured. Life Insurance Settlement Association (LISA)
Why let your policy lapse or take a reduced death benefit if you can sell it for 3 times the surrender value?
If you still want life insurance coverage, you may be able to use life settlement funds to purchase a single premium life insurance policy that has a higher face value than the reduced paid up figure!
Creative thought is necessary when you are in a tight financial spot!
6) Ask For Help!
Ok so you read through all of my tips and nothing works for your particular circumstances.
Unfortunately, you’re still thinking “I can’t afford my life insurance premiums!”. Ugh! Now what??
It’s time for the big guns. Have you thought about asking family members if they can pay your premiums temporarily?
Often people send gifts that are thrown in a closet and never used. This is a gift that has the potential to change your family’s destiny.
If you are older and your kids are grown and listed as the beneficiaries of the policy – they may see the importance of covering the shortfall. It doesn’t hurt to ask!
The person you’ve called or emailed is likely to be thrilled to finally be able to help. If you strike out, muster the courage to try again. You may think you’re placing a burden on the person you’ve contacted, yet if you did the very same thing for that person, you wouldn’t consider it a burden…so, go for it! Psychology Today, How to Ask for Help
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Always Read Your Policy Thoroughly
It’s important to understand all the options and benefits assigned to you by your policy.
If you are struggling to make your premium payments this is all the more important. Don’t panic and rush into a decision about how to proceed unless you are fully informed!
Get to know the details regarding conversion options, when the level term period expires and other benefits that make directly impact how you handle your financial crisis.
Your policy may also have long term care benefits or some other perk that you are not aware of, making continued premium payments all the more important!
We Can Help You With Your Options
Of course, it’s always best to ask a knowledgeable agent what their thoughts are before you decide what path to take.
This is by no means a comprehensive list of all the choices available to you when you are having a tough time paying your premiums.
Your best option could be to simply stay the course and continue to pay your premiums. It may just be a matter of revisiting your priorities and drafting a new budget.
At Huntley Wealth we specialize in finding the best solution for your particular circumstances. We have access to dozens of life insurance companies and over a decade of experience obtaining policies for high-risk individuals. In a nutshell, we’re your go-to life insurance agency!
Why bother keeping my life insurance if I can’t afford it?
Many people are quick to let their life insurance policies lapse since there is no immediate gratification in keeping them active. If someone comes to me with this conundrum I ask them to sit down and think about why they purchased life insurance in the first place.
Inevitably they think about taking care of their loved ones when they pass away.
If you are currently experiencing financial stress, imagine what it will be like for them when you are gone. I highly encourage people to examine all their options before simply throwing their policy away!
Can I lower premiums on my current life insurance policy?
Yes indeed! That’s why I wrote this article. To show you that there are always alternatives to tossing out your coverage. Give us a call and we will work through your options today!